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1999 – The Webvan Wager

Though the startup online grocer Webvan went out of business in 2001, the warehouses AMB bought and developed for the company produced millions in profits. (Photo: Mark Coggins)

During the dot-com boom of the late 1990s, investors shifted away from the stability of REITs in search of Internet stocks that seemed capable of doubling or tripling overnight. Legacy company AMB’s focus remained on conducting sound research, especially on the potential effects of e-commerce on the real estate market.

Demographic research revealed that the retail sector was lurching toward unsustainable levels, as well—with the amount of retail space per capita moving from 7 or 8 square feet per person to 22 or 23 square feet per person.

The big-box phenomenon had mushroomed. Across the country, shopping centers were popping up as retail anchors rushed to open up as many new stores as possible, regardless of demand. Projecting that a rise in e-commerce transactions would erode retail sales over the next decade, Prologis legacy company AMB decided to divest its retail holdings and focus on industrial real estate.

Over the course of nine months, starting in 1999, AMB sold $1 billion in real estate assets to institutional investors, reallocating funds into warehouse spaces well positioned to accommodate the growing needs of e-commerce companies, while reserving $5 million to invest in a startup online grocer called Webvan.

AMB invested in the venture based in part on its need for warehouse space, which allowed the firm to develop three cutting-edge buildings for the company as it worked to expand into major markets across the country. But soon after Webvan’s successful IPO in 1999, the dot-com bubble burst. Struggling to gain market share during the downturn, Webvan was ultimately forced to close its doors in 2001.

The promising startup’s demise—often attributed by industry experts to an overly aggressive expansion strategy—made headlines. In the long run, the buildings AMB bought and developed for Webvan yielded tens of millions of dollars in profits for us.

The experts were early in their predictions regarding the impact of e-commerce: AMB’s research indicates that the Internet now accounts for 10 to 15% of business formerly done at shopping centers. This shift has led to an increased need for precisely the kind of warehouses in the company’s portfolios.

“I’m actually proud of our decision. We’re never afraid to think on our own, and we were never afraid to change our business model, even at a time when we were very successful,” said Prologis Chairman & CEO Hamid Moghadam. “In fact, I would say the ability to see changes in the environment and the courage to do something about them is a mark of this company, has been a mark of this company over time and is something I hope will never change.”